The Hindu : Business : `E. Asia must prepare for possible dollar collapse'

Online edition of India's National Newspaper
Wednesday, Mar 29, 2006

Business

Business

`E. Asia must prepare for possible dollar collapse'

TOKYO: With the U.S. trade deficit at a record high and global interest rates rising, East Asian economies need to be prepared for a possible `collapse' of the dollar, the Asian Development Bank warned on Tuesday.

"Any shock hitting the U.S. economy or the global market may change investors' perceptions given the existing global current account imbalance,'' said Masahiro Kawai, ADB's head of regional economic integration. "Our suggestion to Asian countries is: do not take this continuous financing of the U.S. current account deficit as given. If something happens then East Asian economies have to be prepared,'' he told reporters on a trip to Japan.

Because of the highly interdependent nature of the East Asian economies, if countries worked together to allow their currencies to collectively appreciate against a tumbling dollar then the cost of adjustment would be spread, he said. "The possibility of a U.S. dollar collapse or sharp decline may be small at this point but it would generate very significant turmoil so East Asian economies... ought to be ready for that,'' Mr. Kawai said.

The Manila-based ADB is working on several indices of Asian currencies that could be helpful to monitor exchange rate movements in the case of a sharp dollar decline, though its main aim is to help develop regional bond markets. — AFP

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